For most people looking to open a business and make an investment, loans are an important part of the process. Additionally, for mom and pop shops to survive short-lived financial hiccups, short-term loans can provide a safety net.
In short, a loan is a sum of money that is borrowed from a bank, nonprofit lender or online lender. The amount borrowed is repaid in full over a specific amount of time with interest rates included. For businesses, there are both short and long term loans available. Each type has specific qualifications and details to cater to a variety of business needs.
Let’s break them down.
As the name suggests, long term loans typically offer a larger amount of money that is paid back over a longer period of time–sometimes decades. Because the request is for a larger sum of money–and poses greater risk to the lender–approvals can be more selective and might take longer. These loans are typically used for bigger business projects, like building a new office or store front.
Many new businesses or entrepreneurs rely on short term loans to provide them with funds quickly. Some applicants may receive the funds within 24 hours. This timeline is nearly impossible for long term loans. Because the process can be completed quickly, the loan amounts are more modest. Small businesses often don’t require a hefty loan, so short term funding provides a channel to money quickly.
Deciding between these two types of loans simply depends on the needs of a business. Either way, they can help get your small business up and running, or help make improvements that will attract customers.